Can Directors or Commissioners Be Sued Personally? Understanding the Limits of Business Judgement Rule Protection in Companies

• Admin
• Business Law, Corporate Law, News and Insights
• December 1, 2025

As a Director or Commissioner in a company, all decisions and policies made carry risks that could harm the company. This raises the question of whether Directors or Commissioners can be sued personally in civil or criminal court?. This question is one of the legal issues that often arises in corporate practice, especially when a company is faced with business losses, default, bankruptcy, or losses that result in financial losses to the state caused by a decision or policy of the Directors or Commissioners. This raises concerns for the Board of Directors or Commissioners in issuing corporate business decisions or policies, as losses may open up the possibility of personal liability (piercing the corporate veil). The following article will comprehensively discuss the limitations of the Business Judgment Rule in providing protection to the Board of Directors or Commissioners of a company.

The Business Judgment Rule (“BJR”) is a doctrine that directors and commissioners cannot be held legally liable for decisions or policies issued, even if they cause losses to the company, as long as they are made in good faith and with due care.[1] The BJR exists as a counterbalance to the doctrine of fiduciary duty or the responsibility of company directors.[2] The BJR exists based on the need for:

1. Preventing the criminalization of business risks;
2. Providing space for the Board of Directors or Commissioners in determining strategic decisions for the company;
3. Ensuring that the company can determine business risks rationally.

Asep N. Mulyana, in his book entitled Business Judgement Rule, Praktik Peradilan Terhadap Penyimpangan dalam Pengelolaan BUMN/BUMD, states that “the Business Judgment Rule is an instrument that can be used as a basis for business actors to be creative in making business decisions.”.[3] The BJR doctrine is often used as a basis of defense by Directors and Commissioners to avoid legal liability claims. In other words, business losses arising from decisions or policies issued by Directors or Commissioners cannot necessarily be held personally liable.

Directors or Commissioners cannot be held personally liable when they comply with the provisions stipulated in the regulations implementing the BJR, which include the following:

1. Article 97 paragraph (5) of Law Number 40/2007:

“The board of directors shall be exempt from personal liability if it can prove four cumulative conditions:

1. 1. The loss was not due to its fault/negligence;
   2. Management was carried out in good faith and with due care;
   3. There was no conflict of interest (direct/indirect conflict of interest);
   4. Measures were taken to prevent or stop the loss.”

The above provision applies mutatis mutandis to Commissioners with reference to Article 114 of the Law Number 40/2007. The provisions of the above article must be proven cumulatively; if one of the conditions is not met, the BJR is void and cannot be used to protect the Board of Directors or Commissioners from civil or criminal liability.

2. Article 3 paragraph (1) Explanation of the UUK-PKPU

“…the Curator’s lawsuit against the Board of Directors which caused the company to be declared bankrupt due to its negligence or fault”

In the context of bankruptcy based on the above provisions, a liability lawsuit is filed by the Curator, thus the Board of Directors or Board of Commissioners must be able to prove that there was no negligence that caused the company to go bankrupt or mismanagement in determining management policies.

Based on the above provisions which have accommodated BJR, normatively and in practice, the Board of Directors or Commissioners cannot automatically take refuge behind BJR when in the following circumstances:

1. Decisions are made without adequate data/information (lack of informed decision);
2. There is a conflict of interest, either direct or indirect;
3. There is fraud, manipulation of reports, or abuse of authority;
4. There is gross negligence that causes the company to default or go bankrupt;
5. No efforts are made to prevent losses, even though the risks are apparent; or
6. The elements of a criminal offense as stipulated in Article 604 of Law Number 1 of 2023 concerning the Criminal Code and Article 3 of Law Number 31 of 1999 concerning Eradication of Corruption Crimes as Amended by Law Number 20 of 2021 Partially Revoked by Law Number 30 of 2002.

In the event that a company suffers a loss resulting from a decision or policy issued by the Board of Directors or Board of Commissioners, there is a risk of a lawsuit being filed by:

1. Shareholders (derivative suit);
2. Curators;
3. Certain creditors; to
4. Law enforcement officials, if criminal elements are indicated.

In the event of a lawsuit filed against the Board of Directors or Board of Commissioners, in order to use the BJR, it is necessary to prepare supporting evidence, including the following:

1. Minutes of the GMS/EGMS;
2. Minutes of Board of Directors’ Meetings;
3. Documents on the risk assessment of the company’s business decisions or policies;
4. Legal opinions on the decisions or policies issued; and
5. Risk mitigation efforts that have been implemented.

The more complete the documentation used as evidence for business decisions made by the Board of Directors or Board of Commissioners, the greater the chances of BJR protection. The use of BJR has been accommodated in Supreme Court Decision 121 K/Pid.Sus/2020 in a case involving the President Director of a company who was a suspect in a corruption case. In his considerations, the Supreme Court Judge stated the following:

“… the steps taken by the Defendant as President Director of PT Pertamina and President Commissioner of PT Pertamina Hulu Energi did not fall outside the scope of the Business Judgment Rule, as indicated by the absence of elements of fraud (freud), conflict of interest, unlawful acts, and intentional misconduct;”

Therefore, based on the above considerations, the Defendant in this case, as the President Director of the company in the case in question, is protected from BJR and is acquitted of all legal charges (onslag van alle rechtsvervolging).

On the other hand, BJR cannot be applied as protection for the Board of Directors as in Supreme Court Decision Number: 3264 K/PDT/1992 in a case involving a Director who made a debt statement on behalf of the Company without the approval of the Commissioners in accordance with the articles of association. In essence, the judge considered the following

 “…. Based on the reasons stated above, the action taken by Defendant III (the Board of Directors) to make a debt statement to the Plaintiff for and on behalf of Defendant I and Defendant II (the Company) without the approval of the commissioners in accordance with the provisions of Article 11 (2) AD, are ULTRA VIRES actions, because these actions are beyond the scope of their authority. Therefore, the actions of Defendant III are invalid and not binding on Defendant I and Defendant II in accordance with the principle of limited liability attached to Defendant I and Defendant II as legal entities.”

Thus, BJR cannot be applied as a basis for protection of the Board of Directors’ liability due to negligence or error in deciding an action or policy for and on behalf of the company.

Therefore, BJR cannot be applied as a basis for protecting the Board of Directors from liability due to negligence or error in deciding on an action or policy for and on behalf of the company.

Conclusion

Basically, decisions and policies made or issued by the Board of Directors and Board of Commissioners of the Company are business decisions in carrying out business activities that are expected to bring profits to the company. The Board of Directors or Board of Commissioners cannot be held personally liable for business decisions or policies that result in losses for the company, as long as it can be cumulatively proven that there was no error/negligence, that they acted in good faith and with due care, that there was no conflict of interest, and that they had made efforts to mitigate or prevent such losses. Therefore, if these elements can be proven cumulatively, BJR can be used to protect the Board of Directors and Board of Commissioners from any personal claims.

[1] Ramlan, Rizka Syafriana, dan Dewi Kartika, Hukum Perseroan Persekutuan Modal (PT) di Indonesia, Medan: UMSU PRESS, 2024. Page. 181-182.

[2] Asep Mulyana, Business Judgment Rule, Praktik Peradilan Terhadap Penyimpangan dalam Pengelolaan BUMN/BUMD. Jakarta: PT Grasindo, 2018.

[3] Ibid.

References

Law Number 31 of 1999 concerning Eradication of Corruption Crimes as amended by Law Number 20 of 2021 Partially Revoked by Law Number 30 of 2002

Law Number 37 of 2004 concerning Bankruptcy and Suspension of Debt Payment Obligations

Law Number 40 of 2007 concerning Limited Liability Companies

Law Number 1 of 2023 concerning the Criminal Code

Asep Mulyana, Business Judgement Rule, Praktik Peradilan Terhadap Penyimpangan dalam Pengelolaan BUMN/BUMD, Jakarta: PT Grasindo, 2018.

Ramlan, Rizka Syafriana, dan Dewi Kartika, Hukum Perseroan Persekutuan Modal (PT) di Indonesia, Medan: UMSU PRESS, 2024.

 

Author: Muhamat Yanuar Abidin, S.H.